Read more about the article What Documents are in an Estate Plan? Annapolis and Towson Estate Planning

What Documents are in an Estate Plan? Annapolis and Towson Estate Planning

Understanding how estate planning documents work is central to creating an estate plan for each individual’s unique situation. An estate planning attorney needs to know the details of your life, not because they’re nosy. It is because this is how they can create a plan tailored to protect you during your lifetime, plan for long-term care and distribute assets upon your death. A recent article, “Understanding estate planning documents” from Lake Country Record-Bee, explains in broad strokes what each estate plan needs to include.

The will nominates an executor to administer the decedent’s estate, including the distribution of specific gifts and other assets. Depending on your state of residence, the will must be witnessed by one or two people who have no interest in the outcome of your will. At death, the distribution of assets only applies to those in the estate and not to those who receive property transferred under a trust, through a designation of death beneficiary form or a joint tenancy title.

A trust controls and manages assets placed in the trust during life and after death. Assets held in a living trust are used to avoid conservatorships, should become incapacitated during life. Assets in trusts do not go through probate.

Assets transferred into a living trust must belong to the person to establishes the trust, known as the settlor. A married couple may establish a joint trust to receive community property, if they live in a community property state. Each spouse may choose to transfer his or her own separate property assets into a joint trust or keep their separate property assets in separate trusts.

Trust assets are titled for ownership and control to the trustee. The trustee is a fiduciary, meaning they are the legal representative of the trust and administer the provisions of the trust as directed in the trust documents.

You should always have a successor trustee for a trust, who takes office when the last initial trustee resigns, becomes incapacitated, or dies. How and when the transfer to the successor trustee takes place is included in the trust documents. Some trusts include a specific method to fill a trustee vacancy, if no nominated successor trustee accepts the role.

Living trusts can be changed by the settlor. The incapacity or death of the settler makes a living trust an irrevocable trust. A joint trust, however, sometimes allows either settlor acting alone to amend the living trust. Your estate planning attorney will help you determine whether a joint trust makes sense for your family.

Powers of attorney (POA) allows a person (the principal) to authorize another person (the agent) to act as a representative over some or all of the principal’s own legal and financial affairs. The POA does not have any power over a trust; the trustee is in charge of the trust. A POA can be effective on signing or effective upon incapacity of the principal. POA forms do not always reflect specific individual wishes, so it’s best to have one created by an estate planning attorney.

The Advance Health Care Directive (AHCD) delegates authority to an agent to make decisions and act on the principal’s needs in health care. The AHCD must be created and be in place before incapacity occurs. An incapacitated person cannot sign legal documents.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Lake County Record-Bee (Feb. 18, 2023) “Understanding estate planning documents”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article What Do You Need to Do When a Spouse Dies? – Annapolis and Towson Estate Planning

What Do You Need to Do When a Spouse Dies? – Annapolis and Towson Estate Planning

Life events require planning, even the most heartbreaking, like the death of a spouse. Spouses ideally create a blueprint together so when the inevitable occurs, they are prepared, says the article “The important financial steps to take after a spouse dies” from The Globe and Mail. It may sound cold to take a business approach, but by doing so, the surviving spouse will know what to expect and what to do.

Some people use a spreadsheet to clearly see what their financial picture will look like before and after the loss of a spouse.

There are pieces of information that are vital to know:

  • What health insurance coverage does the spouse have?
  • Will the coverage remain in place after the death of the spouse?
  • Do any accounts need to be changed to joint ownership before death?
  • What investments do both spouses have, and will they be accessible after death of one spouse?
  • Is there a last will and testament, and where is it located?

Many people are wholly unprepared and have to tackle their entire financial situation immediately after their spouse dies. If they were not involved in family finances and retirement planning, it can lead to costly mistakes and make a difficult time even harder.

If assets are owned jointly with rights of survivorship, the transition and access to finances is easier. If the accounts are only in one name, the surviving spouse will have to wait until the estate goes through probate before they can access funds. If there are bills to pay, the surviving spouse may have to tap retirement funds, which can come with penalties, depending on the accounts and the surviving spouse’s age.

All of this can be avoided by taking the time to create an estate plan which includes planning for asset distribution and may include trusts. There are many trusts designed for use by spouses to take assets out of the probate estate, provide an income source and minimize taxes. Your estate planning attorney will be able to help prepare for this event, from a legal and practical standpoint.

What happens when there’s no will?

No will usually indicates no planning. This leaves spouses and family members in the worst possible situation. The laws of your state will be used to determine how assets are distributed. How much a surviving spouse and descendants will inherit will be based solely on the law. The results may not be optimal for anyone. It’s best to meet with an estate planning attorney and create a will.

Reviewing beneficiary designations for life insurance policies and retirement accounts should be done every few years. If the beneficiary is no longer part of the account owner’s life, the designation needs to be updated. If the beneficiary had died, most accounts would go into the probate estate, where they otherwise would pass directly to the beneficiary.

If you would like to make sure everything is in order for you and your spouse, please contact us to schedule a call with one of our experienced estate planning attorneys.

Reference: The Globe and Mail (July 13, 2022) “The important financial steps to take after a spouse dies”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Some States Have Tough Estate and Inheritance Taxes – Annapolis and Towson Estate Planning

For now, most people don’t have to be scared of federal estate taxes. In 2022, only estates valued at $12.06 million or more for an individual ($24.12 million or more for a married couple) need to pay federal estate taxes. Even better for the very wealthy, there’s no federal inheritance tax for heirs who reside in such lofty economic brackets, notes the recent article titled “States with Scary Death Taxes” from Kiplinger.

By definition, estate taxes are paid by the estate and based on the estate’s overall value, while inheritance taxes are paid by the individual who inherits property, assets, or anything else of value. This isn’t to say “regular people” don’t need to worry about death taxes. We do, because states have their own estate taxes, and a few still have inheritance taxes.

A number of states eliminated estate taxes in the last ten years or so, in an effort to keep retirees from leaving and heading to places like Florida, where there’s no estate tax. However, a dozen states and the District of Columbia still have estate taxes, six states have an inheritance tax and one has both an estate and inheritance tax: Maryland.

Here’s how some state taxes look in 2022:

Connecticut has an estate tax, with an exemption level at $7.1 million. However, there is no inheritance tax. The Nutmeg state is the only state with a gift tax on assets gifted during one’s life.

The District of Columbia has an estate tax, with an exemption level of $4 million.

Hawaii’s estate tax exemption level is $5.49 million., one of the higher state estate tax exclusions, and is not adjusted for inflation.

Illinois’s estate tax is $4 million, but there’s no inheritance tax. It’s known as one of the least taxpayer friendly states in the country for retirees.

Iowa is phasing out inheritance taxes, but this doesn’t take effect until 2025. In the meantime, there’s no estate tax, and if the estate is valued at less than $25,000, there’s no inheritance tax. No taxes are due on property inherited by a lineal ascendent or descendent, but for other family members, the taxes range from 8%—12%.

There’s no estate tax in Kentucky. However, depending upon your relationship to the person who died and the value of the property, the inheritance tax is 4% to 16%.

Maine has an estate tax exemption of $5.87 million, but no inheritance tax.

Maryland’s has both an estate tax exemption of $5 million and a flat 10% inheritance tax (on transfers to individuals who are not direct relatives (e.g. – cousins, nephews, friends, etc.)

Massachusetts has no inheritance tax and a $1 million estate tax exemption.

Minnesota has a low estate tax exemption of $3 million. Any taxable gifts made three years prior to death are included.

New York, New Jersey, Rhode Island, Oregon, Vermont and Washington have no inheritance taxes, while Pennsylvania has no estate tax but does have an inheritance tax.

It’s not necessary to move purely to avoid estate or inheritance taxes. An experienced estate planning attorney uses strategic tax planning as part of an estate plan, minimizing tax liability and preserving assets.

Contact our office to schedule a preliminary call with one of our experienced estate planning attorneys to review your estate plan and determine whether there are strategies to reduce or eliminate estate or inheritance taxes.

Reference: Kiplinger (July 29, 2022) “States with Scary Death Taxes”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Do You Pass Down a Vacation Home? – Annapolis and Towson Estate Planning

If your family enjoys a treasured vacation home, have you planned for what will happen to the property when you die? There are many different ways to keep a vacation home in the family. However, they all require planning to avoid stressful and expensive issues, says a recent article “Your Vacation Home Needs and Estate Plan!” from Kiplinger.

First, establish how your spouse and family members feel about the property. Do they all want to keep it in the family, or have they been attending family gatherings only to please you? Be realistic about whether the next generation can afford the upkeep, since vacation homes need the same care and maintenance as primary residences. If all agree to keep the home and are committed to doing so, consider these three ways to make it happen.

Leave the vacation home to children outright, pre or post-mortem. The simplest way to transfer any property is transferring via a deed. This can lead to some complications down the road. If all children own the property equally, they all have equal weight in making decisions about the use and management of the property. Do your children usually agree on things, and do they have the ability to work well together? Do their spouses get along? Sometimes the simplest solution at the start becomes complicated as time goes on.

If the property is transferred by deed, the children could have a Use and Maintenance Agreement created to set terms and rules for the home’s use. If everyone agrees, this could work. When the children have their own individual interest in the property, they also have the right to leave their share to their own children—they could even give away or sell their shares while they are living. If one child is enmeshed in an ugly divorce, the ex-spouse could end up owning a share of the house.

Create a Limited Liability Company, or LLC. This is a more formalized agreement used to exert more control over the property. An LLC operating agreement contains detailed rules on the use and management of the vacation home. The owner of the property puts the home in the LLC, then can give away interests in the LLC all at once or over a period of years. Your estate planning attorney may advise using the annual exclusion amount, currently at $16,000 per recipient, to make this an estate tax benefit as well.

Consider who you want to have shares in the home. Depending on the laws of your state, the LLC can be used to restrict ownership by bloodline, that is, letting only descendants be eligible for ownership. This could help keep ex-spouses or non-family members from ownership shares.

An LLC is a good option, if the home may be used as a rental property. Correctly created, the LLC can limit liability. Profits can be used to offset expenses, which would likely help maintain the property over many more years than if the children solely funded it.

What about a trust? The house can be placed into an Irrevocable Trust, with the children as beneficiaries. The terms of the trust would govern the management and use of the home. An irrevocable trust would be helpful in shielding the family from any creditor liens.

A Revocable Trust can be used to give the property to family members at the time of your death. A sub-trust, a section of the trust, is used for specific terms of how the property is to be managed, rules about when to sell the property and who is permitted to make the decision to sell it.

A Qualified Personal Residence Trust allows parents to gift the vacation home at a reduced value, while allowing them to use the property for a set term of years. When the term ends, the vacation home is either left outright to the children or it is held in trust for the next generation.

Reference: Kiplinger (Feb. 1, 2022) “Your Vacation Home Needs and Estate Plan!”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys